A Comprehensive Synopsis of New TCS Provisions with Effect from 1st October, 2020

Deepti Shikha

20 Apr, 2020

Finance Bill, 2020 has inserted a new TCS provisions Section 206 (1H) of the Income Tax Act, 1961, to charge TCS on sale of goods, which was to be effective from 1st April 2020. However, the Parliament while passing the Finance Bill in the Lok Sabha amended the said section and has also postponed the date from which it becomes operative to 1^st October 2020 instead of 1st April 2020. The newly introduced provisions will be effective from 1^st October 2020.

The Key Provisions Introduced Are:

Section 206C(1G)(a) – Tax Collection at Source (TCS)  on foreign remittance through LRS or Liberalised Remittance Scheme.

 Section 206C(1G)(b) – Tax Collection at Source on sale of overseas tour package.

And Section 206C(1H) – TCS on sale of any goods [except the goods on which TCS applies as per Section 206C (1), 206C (1F), and 206C (1G)].

What is Tax Collected at Source or TCS?

The tax collected at source is the tax payable by the seller or merchant at the time of sale. S. 206C of the Income Tax Act, 1961, governs the TCS. Newly inserted TCS provisions have been explained in this article. Section 206(1H) added to the TCS Provisions vide Finance Bill, 2020.

Section 206C (1G)(a)

• An authorised dealer Who receives an amount or an aggregate of amounts of Rs. Seven lakh or more in a financial year for the transfer of funds out of India under the Liberalised Remittance Scheme or LRS of Reserve Bank of India, shall be liable to collect tax Collected at Source or TCS, in case he receives a sum in excess of given amount from the buyer being a person remitting such amount out of India, at the rate of five percent.
• In case the dealer does not have a PAN or Aadhar Card, the charged rate shall be ten percent.

Exceptions to the provisions of Section 206C(1G)(a)

The exceptions to this provision are mentioned below:

• If the buyer is has deducted TDS on any other provisions or liable to deduct TDS.
• If the dealer is Central Government, State Government, an embassy or a high commission, a legation or a commission, a consulate, the trade representation of a foreign state, a local authority or any other individual as specified by the Government.

Who is an Authorised Dealer as per this provision?

Authorised dealer, according to TCS provisions, means any person authorised by the Reserve Bank of India under S. 10 (1) of the Foreign Exchange Management Act, 1999, to deal in any foreign scrutiny or exchange.

Section 206C (1G)(b)

• A dealer of an overseas tour package program is one who receives an amount from the buyer, and also, he is the person who purchases such a package. He will be eligible to collect TCS at the rate of five percent.
• In case of non-availability of PAN/ or Aadhar card, the applicable rate shall be ten percent.
• There is no monetary limit  specified for  making this transaction, irrespective of any amount Tax Collected at Source or TCS must be collected by the seller of that package

Exception to Section 206(1G)(b)

This section is not applicable in the following cases:

• In case the buyer has deducted the TDS or is liable to deduct under any of the provisions.
•  If the buyer is State Government, Central Government, an embassy or a high commission, a commission, or a consulate or the trade representation of any foreign state, a local authority or any other person as specified by the  Central Government.

What can be said to be an Overseas Tour Program Package as per this new TCS Provisions?

Overseas tour program package as per the new TCS provisions are explained as any tour package which offers a visit to a foreign country /countries or territory/ territories out of India. It includes expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature or in relation thereto.

Section 206C (1H)

• A seller of goods can collect tax Collected at Source (TCS) at the rate of 0.1 percent on the consideration received from a buyer in the previous year in excess of Rs. 50 lakh.
• If the dealer does not have a PAN card or Aadhar card, the rate shall be one percent.
• Only those sellers whose total sales or gross receipts, turnover from the business exceeds Rs. 10 crores during the financial year, shall be liable to collect the TCS.
• The Central Government may notify the individual, subject to the conditions mentioned in the notification as to who shall not be liable to collect the TCS.
• TCS is not to be collected from the Central Government, State Government and embassy, High Commission or legation, commission or consulate, the trade representation of a foreign State, or a local authority as defined in section 10 (20).
• No TCS must be collected, if the seller is liable to collect TCS under other provision of section 206C such as Section 206C (1), 206C (1F) and 206C (1G) or the buyer is eligible to deduct TDS under any provision of the Act and has deducted such amount.

Classification of Sellers and Buyers for TCS

There are certain people or organisations that have been classified as sellers for tax collected at source (TCS). No other seller of goods can collect TCS from the buyers apart from the following given list :

1. Central Government.
2. State Government.
3. Local Authority.
4. Statutory Corporation /Authority.
5. Company registered as per the Companies Act, 2013.
6. Partnership firms.
7. A Co-operative Society.
8. Any person or Hindu Undivided Family (HUF) is subjected to an audit of accounts as per the Income-tax act,1961, for a particular financial year.

Similarly, only some buyers are eligible to pay the tax at source (TCS) to the sellers. The list of buyers is mentioned below:

1. Public Sector Companies
2. The Central Government
3. The State Government
4. An Embassy of High commission
5. A Consulate and other Trade Representation of any Foreign Nation
6. Clubs inclusive of sports clubs and social clubs

TCS under GST

a. Any traders or dealers selling goods online would receive the payment from an online platform after deducting the amount tax at the rate of1 % under IGST Act. (0.5% in CGST & 0.5% in SGST)

b. The tax must be deposited to the Government by the 10^th of the next month.

c. All the dealers or traders are required to get GST Registration. It is a mandatory process.

d. The provisions are effective from 1^st October, 2018.

Goods and Transactions as Classified under TCS

The points to be considered for collecting tax at source are as follows:

• Liquor of alcoholic nature which can be consumed by human including IMFL or Indian Made Foreign Liquor.
•  Timber wood achieved from a leased forest
• Tendu Leaves
• Timber wood obtained by any other mode except lease.
• A forest product other than Tendu leaves and also timber.
• Scrap
• Parking lot of ticket, Toll Plaza, Quarrying, and Mining.
• Minerals which include lignite or coal /iron ore.
• Bullion exceeding over Rs. 2 lakhs or Jewellery exceeding Rs. Five lakhs.

Certificate of TCS

• Form 27D must be submitted within seven days from the last date of the month in which the tax had been collected by an individual who is responsible for collecting TCS.
• Between the period which starts on March 31 and ends on September 30 for a financial year, a consolidated certificate can be issued within a month from the last day of the said period. The buyer must request this certificate.
• In case an individual losses his TCS certificate, then the in-charge officer for the collection of TCS source has got the right to issue a duplicate certificate that can be printed and also can be attested on plain paper attached with the required details as mentioned in the Form 27D.

Basic Requirements to Implement the New TCS Provision

• The PAN card of every customer must be updated, whose sale amount can cross Rs. Fifty lakhs during the year. Mentioning the PAN number is mandatory in all the invoices of more than Rs. 2 lakhs.
• The buyers categorization into central Government, State Government or a local authority, etc. is compulsory, here TCS does not apply to the sale of goods. In many points, the identification of a Government customer or a non –government customer becomes difficult. The exemption provided in TCS is not applicable to customers of PSUs.
• The accounting system software must be updated in an organization so that the TCS collection will start once the threshold consideration of Rs. Fifty lakhs exceeds.
• Generally, in other provisions of TCS, IT needs to be collected while collecting the consideration amount, or while debiting the customer account(whichever is earlier).
• However, during the sale of goods (other than tendu leaves, scrap, etc.), the TCS must be collected at the time of receiving the consideration amount. At the time of invoicing, number TCS needs to be collected. This is making the whole accounting process difficult as the business might have to raise a separate debit invoice for TCS at the time of receipt of payment.
• A moderate view of the collection of TCS during the generation of invoices itself can be taken (unless the amount is received in advance) as it will make the accounting system and cash outflow on account of TCS will be only 0.10% of invoice value which would not be that considerable amount. However, the expectation lies on the Government to bring a more practical solution to a problem.
• The new TCS provisions provide that TCS at the rate of 0.10% must be collected on receipt of consideration, and such consideration will inclusive of GST or other indirect taxes. So by analysing this section, it seems that TCS is to be collected on the amount inclusive of indirect taxes, which is not applicable to TCS on other products (such as scrap in which TCS is collected on the base value before indirect taxes).
• Even if the aim of the law is to collect TCS on base value still, it will be very difficult to divide the total consideration received into the base amount and indirect tax amount.

Conclusion

Since the effect of TCS on the sale of goods is vast, so it is estimated that the Government will bring some clarification on the given points, which will resolve several issues associated with the same. Primarily, the buyer use to deduct TDS under section 194C for the supply of goods by vendors, which is classified as a works contract by the vendor. So if supplies are providing works contract services (which includes goods) and buyer is deducting TDS under the Income-tax Act, then TCS provisions on the supply of goods will not apply to vendor/supplier/ seller.